Chairman Davis, Vice Chairwoman Jameson, members of the committee, thank you again for allowing me to speak with you today. My name is David Cooper. I am the senior economic analyst at the Economic Policy Institute (EPI). EPI is a nonpartisan, nonprofit research organization in Washington, D.C. whose mission is to research, develop, and advocate for public policies that help ensure the economy provides opportunity and fair rewards for all Americans, with a focus on policies to support low- and middle-income households.
I am here to support the enactment of HB 974, which would close a loophole in Maryland’s wage and hour laws that exempts many lower-paid managers and administrative workers from overtime pay when they work more than 40 hours per week. Under current Maryland law, a line manager at a fast food restaurant or discount retailer making $455 per week—that’s an annual salary of $23,660 or an hourly wage of just $11.38 per hour if they work 40 hours per week all year—could be required to work 60 or more hours a week for no more pay than if they worked 40 hours. HB 974 would raise the statutory threshold exempting professional, administrative, and professional employees to those being paid at least $900 a week ($46,800 annually.) Not only is this change long overdue, but it will become even more necessary if the legislature raises the state minimum wage—as I believe they should. I will explain in greater detail below.
First, I want to provide some history about the 40-hour workweek. Although it is the norm today, the 40-hour workweek was not inevitable or preordained. It was established through legislation with the enactment of the Fair Labor Standards Act of 1938 (FLSA), which requires employers pay a penalty (time-and-a-half overtime pay) when they require their employees to work more than 40 hours in a week. Before the FLSA became law in 1938, factory workers and office clerks often worked 60 or more hours a week, sometimes at miserably low pay. Thanks to the FLSA, most of us expect to have time outside of work free to spend time with family or friends.
From the beginning, the FLSA’s overtime protections covered production workers and many white collar workers alike, from shipping clerks and typists to bookkeepers and accountants. Congress recognized that white collar workers need time away from work just as much as blue collar workers do.
But the federal law (and the Maryland statute, too) does have an exception for higher-paid, higher-status, higher-responsibility positions that Congress and the Department of Labor (DOL) thought did not need the law’s protection. Bona fide executives, administrative employees, and professionals were made exempt from both the overtime rules and the minimum wage. The salary test for exemption was originally set at about three times the minimum wage. Annualized today, three times Maryland’s $9.25 minimum wage is $57,720. When Maryland’s minimum wage rises to $10.10 an hour in July, three times the minimum wage will yield a threshold salary of $63,024 for exemption from overtime. HB 974 would set the threshold at $46,800, which would be a significant improvement over where it is today, yet still a very conservative level compared to the original intent of the law.
In 2016, DOL finished a rulemaking to raise the FLSA’s salary threshold for exemption to $913 per week or $47,476 on an annualized basis. After DOL finalized its rule to raise the exemption threshold, a court in Texas blocked the department from implementing it. The Trump administration has since indicated that they intend to pursue a new rule with a much lower threshold. Had the 2016 rule been implemented, this problem would already be solved, but as if often the case, state lawmakers must now step in to fix a problem borne out of decades of federal inaction.
For 79 years, a salary threshold has been part of the definition of bona fide exempt executive, administrative, and professional employees. But from 1975 until 2016, DOL let the value of the exemption threshold erode to its current ridiculously low level, $23,660—less than the poverty level for a family of four and in no way reflective of executive or professional compensation. Maryland law has tracked federal law and is just as obsolete. In 1975, more than 60 percent of full-time, salaried workers nationwide were automatically eligible—based on their salary—to receive overtime pay if they worked more than 40 hours per week. Today less than 7 percent meet that threshold.
Federal inaction has left millions of employees nationwide—including tens of thousands here in Maryland—without the overtime protection they deserve. By raising the threshold to $900 a week, HB 974 would extend new overtime protections to approximately 70,000 salaried employees in Maryland, setting the threshold at a point that would cover 23 percent of the Maryland’s full-time salaried workers.
Without a clear and appropriate threshold, many low-level employees—such as assistant managers in retail stores or fast food—can legally be denied overtime pay by their employers. The DOL rulemaking record is full of stories of employees working 60 or 70 hours a week without any extra compensation for their long hours. HB 974 would say that no one paid less than $46,800 a year should work more than 40 hours a week without getting paid time and a half for the extra hours.
Setting an appropriate threshold also makes the rights of employees who are already covered and the duties of their employers clearer. Many salaried employees paid above the current threshold are nevertheless entitled to overtime pay because their primary duty is not executive, administrative, or professional. They include scores of occupations, from paralegals and postdoctoral researchers to dental assistants and copy editors. Most bookkeepers are entitled to overtime pay, for example, but many do not know it, and neither do their bosses. With a $46,800 salary threshold, at least the employees paid less could be sure of their rights. Altogether, there are about 219,000 salaried employees in Maryland who would have their right to overtime established or clarified by a higher threshold.
Employers will have several ways to adjust to the new overtime pay requirements:
- They can raise employee salaries above the threshold if they want to continue working employees more than 40 hours a week without paying for or keeping track of overtime.
- They can reduce the hours of overworked employees and share their workload with other employees. For example, an assistant manager who now helps stock shelves and clean floors, adding 20 extra hours to her work week without any extra compensation, can assign that work to part-time employees, who will benefit from the extra hours and pay.
- If the employee’s salary is too low to raise above the threshold, the employer can pay overtime for the extra hours.
- They can manage time more efficiently, avoiding late-in-the-day meetings, for example, and demand that employees complete their weekly tasks within 40 hours.
Other states have for many years set their own salary thresholds, rather than rely on DOL. California sets its threshold at twice the state minimum wage, which is set to go to $15 an hour in 2022. The threshold is currently $45,760, and will rise in steps to $62,400 by 2022 (2023 for small employers). New York sets its threshold at 1.875 times the minimum wage. The threshold is currently $50,700 in New York City, $40,560 upstate, and $42,900 in the New York City suburbs. The thresholds will rise in annual steps to $58,500 in New York City by December 31, 2018 and in the suburbs by the end of 2020. The regulations raise the threshold upstate in annual steps to $48,750 at the end of 2020. Pennsylvania has recently announced that it too will raise its overtime threshold to $47,476 annually or ($913 a week)—matching the 2016 DOL rule.
HB 974 is a good bill that will go part way to restoring the core labor standards we had in the years before the United States began experiencing the wage stagnation and growing inequality that plague our economy today. It will be even more critical, however, if Maryland chooses to raise its minimum wage to $15, or really any other level above $11.38 an hour.
The same loophole that exempts administrative, professional, and executive workers from automatic overtime protection also exempts them from the minimum wage. This means that if the salary threshold is left where it is and the minimum wage is raised above $11.38, an employer could assign token managerial responsibilities to a full-time staff person and effectively exempt them from the new minimum wage. They would only need to pay them $11.38 per hour ($455 a week at 40 hours per week) and only for 40 hours a week, even if the employee actually worked 50 or 60 hours. There is no reason why someone with “manager” in their title—even if the bulk of their work is performing the same tasks as front-line staff—should be exempt from the same protections afforded those front-line workers unless they are being fairly compensated.
I strongly urge you to enact HB 974, not only to restore basic overtime protections that should have been maintained at the federal level, but also to preserve the integrity of any minimum wage increase that this legislature enacts.